What is a secrecy jurisdiction?
We use the term ‘secrecy jurisdiction’ interchangeably with the term ‘tax haven’ – depending on which aspect we want to emphasise. So for this project we generally prefer the term ‘secrecy jurisdiction.’ We sometimes use the term 'offshore financial centre' too.
There is no generally agreed definition of what tax havens or secrecy jurisdictions are: the phenomenon has many different aspects and no definition can capture them all. So we do not offer our own formal definition - though we do take a broad political-economy view of what the phenomenon is. Loosely speaking, a secrecy jurisdiction provides facilities that enable people or entities escape (and frequently undermine) the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool. A ranking of jurisdictions by secrecy score is provided below.
The Financial Secrecy Index focuses on secrecy (escape from disclosure) but these jurisdictions also often offer escape from tax, from financial regulation, from criminal laws, from corporate governance rules, from inheritance rules and more. The offshore system is an interconnected ecosystem of different jurisdictions offering different mixes of these escape facilities and of the various different 'flavours' of secrecy.
We have also found that secrecy jurisdictions tend to be 'captured states', where offshore financial services tends to be deliberately ring-fenced and insulated from domestic political opposition. Relevant laws and approaches to the industry are created by small numbers of professional insiders in the jurisdiction in collaboration with offshore financial services interests from elsewhere, with the civil service often providing little more than a rubber-stamping service. Most of our narrative reports for the larger secrecy jurisdictions find the 'captured state' phenomenon to be relevant, as does TJN's research into the so-called Finance Curse.
The business model of these places is the product of two apparently conflicting offerings or incentives to international owners of financial capital. The first is to convince them that the jurisdiction is safe, trustworthy and law-abiding. The second is to convince many of them that they will tolerate and protect law-breaking dirty money or abusive behaviour. Crudely put, the offshore offering is a message to the world's capital that "we will not steal your money, but we will turn a blind eye if you've stolen someone else's."
This perspective helps explain the apparent paradox that jurisdictions such as Switzerland or the UK are regularly ranked among the 'cleanest' and least corrupt in international corruption rankings - while also harbouring oceans of of dirty money.
Definitions: further reading
We are comfortable with several formal definitions out there, and we offer some background material discussing various ways of looking at the issues.
Our short two-pager provides an introduction to the issues. For a more detailed exploration of the characteristics of secrecy jurisdictions, and some discussion of the language, see Richard Murphy’s paper Defining the Secrecy World. Another useful definition is contained in Treasure Islands (page 8 of the UK edition,) and there is a discussion of definitional difficulties in Tax Havens: How Globalization Really Works, by Ronen Palan, Richard Murphy and Christian Chavagneux, mostly on pp21-25, and in an article published in Economic Geography in 2015, here. See also this description: "offshore is, almost by definition, a smoke-filled room," highlighting their 'captured state' character.
Geography: the five groupings
Consider first how many rich Nigerians are likely to stash their wealth in Zurich - and then consider how many rich Swiss are likely to stash their wealth in Lagos. The answer is obvious. Secret capital almost always flows from poor to rich countries: overwhelmingly, the secrecy jurisdictions are located in rich countries. We loosely describe five main groupings (click on the countries to access their special reports outlining the histories and political economy of their offshore sectors.
See also the Politics of Secrecy for further insights into what the offshore system is.
Ranking by secrecy score only.
Our main index is created by mathematically combining a secrecy score with a weighting. This ranking, however, strips out the weighting component.